Alkem Labs’ bets on domestic growth, revival in US market


Shares of Alkem Laboratories Ltd are trading near fresh highs this month after having gained more than 40% so far this fiscal. Investors seem to have derived confidence from the company’s healthy growth in the domestic formulations businesses.

Alkem offers a strong chronic product portfolio and also has a large acute product range, both drivers of its growth and earnings prospects.

Alkem had recorded a 38.1% rise in revenues in the June quarter. This was supported by a year-on-year (y-o-y) growth of 69% in domestic formulation sales. Price erosion in the US market has, however, been hurting the company’s growth, and sales fell 9% y-o-y in the quarter.

Firm trajectory

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Firm trajectory

Given domestic formulations contributed about 60% to revenues, this can potentially offset a weaker performance in the US market.

Also, while growth in the acute segment was strong, the chronic and trade generics segments also grew by more than 50% in the June quarter, point out analysts.

True, growth in covid-related drug sales have normalized after having surged in the wake of the pandemic. Even so, Alkem clocked a 21.2% y-o-y growth in August, outperforming the domestic pharma market’s growth of 18%.

The company’s trailing 12-month sales growth at 18.6% is also a comfort. Therefore, analysts are expecting a growth rate in the high teens for the next 12 months.

The company is also investing in biosimilars, largely in oncology and osteo therapy products, which brightens the growth outlook.

Meanwhile, the pricing pressure in the US market continues to be an overhang on growth there.

US sales declined y-o-y in the June quarter, but analysts point to a 11% sequential growth as an encouraging sign.

The ramp-up in sales of recently launched pain management generics of Duexis should also help.

Pointing to a decent pipeline of new launches, analysts at HDFC Securities Ltd expect US revenue to grow at 11% compounded annual growth rate basis over FY21-23.

However, the major gains in share prices show that much of these positives are already priced in. With the recent rise, the shares of Alkem Laboratories trade at 26.7 times the earnings estimates of FY22.

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